French politicians doing little to prevent foreign takeovers

French politicians put markets on protectionism alert over the past year with talk of "economic patriotism" but forced retreats in gas, steel and aviation have shown how little they can do to halt mergers and guide managers.

French politicians put markets on protectionism alert over the past year with talk of "economic patriotism" but forced retreats in gas, steel and aviation have shown how little they can do to halt mergers and guide managers.

Repeated declarations by top politicians of the importance of economic patriotism - generally taken to mean a policy of shielding key industrial icons from foreign takeover - raised the hackles of competition authorities earlier this year.

They also fed into an outbreak of protectionist and anti-market rhetoric in a country with a traditionally sceptical attitude to liberal free market policies.

EU Monetary Affairs Commissioner Joaquin Almunia, the bloc's top financial official, even accused Paris this year of going back to the Maginot Line, the useless defensive network that was swiftly overcome by the invading German army in 1940.

But markets, which were taken aback by talk suggesting it would be up to governments rather than shareholders to decide takeover battles, have looked on as the main planks of the policy in the energy and steel sectors have sagged or collapsed.

European steel group Arcelor, which employs thousands of workers in France, has been subject to a successful bid - subject to final approval - by Mittal Steel, while plans to merge Gaz de France and utilities group Suez have been delayed.

With President Jacques Chirac and Prime Minister Dominique de Villepin slumping in the opinion polls ahead of next year's elections, the government may be accepting it is too weak to fight battles with the market.

"I don't think there was anything really solid behind it," said Aurore Wanlin, a policy researcher at the London-based think-tank, Centre for European Reform. The government is going to play its anti-liberalisation card but that doesn't mean in practice that it will translate into concrete action," she said.

Certainly the events of the past weeks have done little to suggest that government declarations alone can do much to influence market outcomes.

Plans to merge gas distributor Gaz de France with utilities group Suez, a deal hatched to ward off a possible takeover bid for Suez from Italy's Ene, have been delayed until September and may be abandoned in the face of oppositeion even from politicians in Chirac's own party.

"The likelihood of it ever happening appear increasingly remote, simply because we sense that the political agenda will have moved on come September," Marc Watton, a senior credit analyst at French bank BNP Paribas said.

Steel giant Arcelor has accepted a takeover bid from Mittal Steel, signalling the end of a campaign in which politicians, including Villepin, threw their weight behind the Luxembourg group's bid to fight off Mittal.

And the government has conceded it is all but powerless to intervene in the management turmoil hitting aircraft maker EADS, an icon of state-backed European industrial policy.

"It shows you the way the situation in France is changing, not just with external shareholders but also the government attitude to some of these things," said Andrea Williams, head of European equities at Royal London Asset Management.

Making the best of things, Chirac said the government's intervention had at least helped sweeten the Arcelor deal.

"It is an offer which...went from 'unfriendly' to 'friendly', and therefore (is) acceptable." ..SUPL: